Apple and Ireland begin appealing €14.3bn tax bill

Lawyers representing Apple and the Irish Government has begun their arguments in the EU’s lower General Court in an attempt to protect the suspect corporate tax environment.

In 2016, the European Commission ordered the Irish Government to collect back-taxes off Apple to the tune of €14.3 billion, including interest. Apple does not want to pay tax. Ireland does not want to collect it. Europe wants a level playing field. The lawyers are looking forward to nuance to bolster their bank accounts.

During the opening arguments, Apple’s lawyers suggested the European Commission decision “defies reality and common sense,” according to Reuters. Both the iPhone manufacturer and the Irish Government will argue against the decision to tax environment contravenes state aid rules.

Let’s be clear. Ireland is a tax haven. It is facilitating corporate tax avoidance. It is helping corporates collect greater profits without rewarding the societies they strain. Irish Government officials should be embarrassed they are helping technology giants abuse its European partners, the very same European partners which bailed it out of financial doomsday a decade ago.

This is a selfish position, and just at the time when the country is looking to Europe to protect it as Brexit looms large on the horizon.

Some might argue the Irish Government is entitled to charge whatever tax it wants. However, a modern society works because the general public and corporations pay taxes. It pays for roads, schools, hospitals, police officers and postal workers. There are technology giants out there who are asking consumers to strain their wallets further each year and care less about their right to privacy, but they are not willing to contribute to the societies which are fuelling the monstrous profits reported every three months.

With international borders being broken down, much to the distaste of some, irregular taxation policies can be taken advantage of. This is what is happening here. It beggars belief that Ireland can argue the benefits of the single economy, and still maintain this position, weakening the position of partners, depriving them of much needed taxes.

This is not the position the European Commission has taken, but it is the one each of Ireland’s partners in Europe should. Why should Ireland be able to collect all the benefits of Apple’s assaults on the European digital economy when it is citizens of every other nation which is fuelling the iLeader’s growth?

For some, it might sound bizarre that the Irish Government doesn’t want to collect €14.3 billion off Apple, but there are two reasons for this.

Firstly, if the Irish lawyers were not to fight back against the enforced tax run, it is effectively conceded to the assertion that it is a corporate tax haven. The last thing the Irish Government wants to do is admit that it is helping the already richly rewarded residents of Silicon Valley rip-off neighbouring governments further with creative tax strategies.

Secondly, Ireland needs to ensure it is viewed as a friendly corporate-tax environment moving forward if it is to continue to attract corporations to its borders. Ireland doesn’t necessarily have the best talent, it doesn’t have the largest economy and it doesn’t have a local supply chain for manufacturing. It needs a plug to interest the likes of Apple, Facebook, IBM, Intel, Twitter, Pinterest, PayPal and Amazon to house their European HQ in the country.

The value of the technology industry to both the Irish Government and society should not be undervalued. The Irish economy entered severe recession in 2008, and then an economic depression in 2009. The country was in tatters, though it was saved by the technology industry.

Over the last decade, technology giants thrived in the tax haven, creating new jobs directly and indirectly, and continues to be one of the biggest drivers today. Silicon Docks is as important to Dublin as Silicon Valley is to California.

That said, the European Commission does not agree this dynamic should be allowed to continue.

Should the Irish Government continue this favourable tax regime for certain companies, a competitive advantage is offered. The Commission, ably led by Margrethe Vestager, has been tackling anti-competitive business practises for years. If such a monstrous company like Apple is given a competitive advantage, state aid to run riot, start-ups will always be on the back-foot. Competition will likely never emerge, and the consumer will be in a precarious position.

Over the next couple of days, lawyers representing Apple and the Irish Government will argue against the opinion of the European Commission, attempting to overturn an order to collect back-taxes and create a more reasonable tax environment. It will argue that it is perfectly reasonable for it to help Apple bleed the consumer dry and then hide profits from governments who are asking for a fair contribution back to society to pay nurses.

Ireland should be embarrassed.

GSMA boasts of climate change progress

The GSMA has announced 50 telcos around the world have signed-up to an initiative to drive greater transparency through the industry with regard to its contribution to climate change.

Representing more than 66%, 5.2 billion, of the worlds’ mobile connections, the 50 telcos will disclose their climate impacts, energy and greenhouse gas (GHG) emissions. The initiative will also include the development of an industry-wide plan to achieve net-zero GHG emissions by 2050 in line with the Paris Agreement.

“Today’s announcement marks the start of a collaborative action by the mobile industry to tackle the climate emergency, demonstrating how the private sector can show leadership and responsibility in addressing one of the gravest challenges facing our planet,” said Mats Granryd, Director General of the GSMA.

“The mobile industry will form the backbone of the future economy and therefore has a unique opportunity to drive change across multiple sectors and in collaboration with our suppliers, investors and customers.”

Although the lobby group is giving itself a proud pat on the back, what is worth noting is that numerous other industries have already made prominent steps forward to addressing climate change. Airlines, for instance, have included a tick-box during the purchasing procedure which allows consumers to make a charitable donation to offset the carbon emissions attributed to their seat on the plane. It’s a step-forward of course, but the telco industry is not the quickest off the mark.

Using the Science Based Targets initiative (SBTi) framework, the industry will attempt to aid climate change enthusiasts limit global warming to 1.5°C above pre-industrial levels. Although the deadline date for the Paris Agreement is 2050, there is likely to be a huge amount of regional variance. The ability for companies to meet the deadline will be impacted by the ability to access renewable energy, current network deployments and the geographical nature of their location.

While it might not sound like much, limiting the increase in average temperatures by 2050 to 1.5°C above pre-industrial levels instead of 2°C could have a significant impact. 11 million fewer people might be exposed to extreme heat, 61 million fewer people exposed to drought, and 10 million fewer people exposed to the impacts of sea level rise. The SBTi is also claiming this 0.5°C could also halve the number of vertebrate and plant species facing severe range loss by the end of the century.

This is certainly a positive step-forward, and while we suspect many will only be agreeing to the initiative as a PR push rather than a genuine belief in the perseverance of the environment over profits, does it actually matter? If the end goal is achieved, does anyone really care what the drivers of the players were?

Elliot set to challenge AT&T leadership over media strategy – report

The apparent anointing of John Stankey as the next AT&T CEO is reportedly what prompted Elliott to announce its activist intentions.

Right now this insight comes courtesy of the WSJ alone, which has chatted to some people who think they know what they’re talking about. The report says AT&T Randall Stephenson plans to call it a day soon and has been grooming his mate John Stankey to take over. Stankey was recently promoted the specially-created role of COO, which would be easy to view as a stepping stone to CEO, especially since most of the company now seems to report directly to the COO.

Shortly after activist investor firm Elliott Management announced it had acquired a significant shareholding in AT&T and intended to use that position to pressure the AT&T management into making changes that it reckons will significantly boost the share price. That is the ultimate aim of activist investors like Elliott, which are sometimes referred to as vulture funds.

The WSJ piece mainly seeks to flesh out Elliot’s objectives. It claims the closed, cronyish succession plan is what provoked Elliott into breaking cover and going public with its concerns. The continued promotion of Stankey is considered to be symptomatic of a botched approach to AT&T’s strategy of diversifying towards media, as he has been put in charge of it all, rather than leaving it to the media experts already in place at the acquired companies.

Elliott has rich form in messing with the grand plans or corporate execs, having recently succeeded in preventing Vivendi from controlling Italian operator group TIM while only owning a quarter of it. AT&T is an order of magnitude larger but the same principles apply. If Elliott can convince other AT&T shareholders that its plans for the company will give them a better return than those of Stephenson and Stankey then it could initiate a proxy battle for control of the company.

The handling of the DirecTV acquisition seems to be especially derided by Elliott, which seems to think AT&T should cut its losses and flog it. But its complaints don’t seem to stop there, with Stankey’s control of WarnerMedia apparently a source of grievance too. A lot rests on AT&T’s imminent SVOD service, HBO Max, which will have to succeed in a very competitive market to reassure its investors.

Change is on the Telefónica horizon with towers and workforce restructure

Telefónica has announced plans to accelerate the strategy of monetizing its tower assets after getting the green light from the Board of Directors.

The woes of Telefónica have been quite apparent in recent years. Despite owning regionalised businesses which are either market leaders or at the top-end of the scale, the firm has been drowning in debt. In bygone years, it was rumoured the firm was struggling with €53 billion debts, though it does seem to have gotten a handle on things.

At the end of 2018, thanks to several cost saving initiatives, debt had been reduced to €41.785 billion. During this period the firm did toy with a number of divestments (O2 UK) and an IPO of the tower infrastructure business, Telxius. This IPO fell through, but the business unit does present a new opportunity.

Following the Board Meeting, the team is pushing forward with plans to generate more profits through monetizing both passive and active telecoms equipment. And it does appear there are profits to be made.

Telefónica currently claims to own roughly 68,000 sites globally, either directly or through subsidiaries. Of those 68,000, tower infrastructure business Telxius owns approximately 18,000, with the remaining 50,000 owned by other units within the group. 60% of these assets are located within the four major markets (Spain, UK, Germany and Brazil).

By comparing the value of these assets with market benchmarks, Telefónica believes it can generate €830 million in revenues and €360 million in OIBDA. Another attractive component is the belief these sites would only require €25 million in maintenance capital expenditure across the year.

While this strategy might be considered as a means to aid rivals, the numbers are attractive to a business which is facing financial and competitive strain. Aside from the debt which is still looming above the heads of executives, subscriptions data is not the most attractive either as you can see from the table below:

Total access (connections/subscribers on network) in millions
Year Spain Germany UK Brazil South HISPAN North HISPAN
2015 41.97 48.36 25.29 96.92
2016 41.23 49.35 25.76 97.22
2017 40.99 47.6 25.31 97.91 58.45 72.57
2018 41.55 47.09 32.98 95.3 56.91 73.56

What is worth noting is that ‘total access’ accounts for everything which is running across one of the Telefónica networks in that region. That could mean mobile, wholesale, MVNOs, TV or broadband. That said, the numbers tell a story for themselves; Telefónica isn’t really going up or down, just hovering around.

If the traditional means of making money, attracting more subscribers, isn’t necessarily paying off the debtors, Telefónica needs to think about new strategies. Monetizing the tower infrastructure assets is certainly one way to go, and restructuring the workforce is another idea which might save money across the year.

Alongside the tower monetization announcement, Telefónica Spain has also said it is currently in negotiations with trade unions concerning its workforce. In short, that means some will be retrained, some will be encouraged into retirement and others will be shown the way to the door.

“The collective agreement we signed four years ago has enabled us to make great advances and has provided us with social and labour stability during this period,” said Emilio Gayo, Chairman of Telefónica Spain.

“Now we have to be more ambitious and evolve into a more digital company that is ready for the challenges ahead.”

Although Telefónica Spain is not putting any numbers out into the public domain, reports have emerged that the workforce will be trimmed by roughly 5,000. Those over the age of 53 will be offered a ‘voluntary individual suspension plan’, while the plan is to double the training budget to reskill staff members.

With an eye on the horizon, Telefónica is seemingly preparing to future-proof its largest expense; employees. The management team anticipates more than half of sales will be through digital channels in a few years’ time, while legacy fixed and mobile networks will be shut down during the ‘modernisation’ period. This will make a number of people redundant.

In fairness to Telefónica , it is creating plans to help evolve the skill sets of employees, but with any business evolution there will always be the messy job of headcount reduction.

Aussie regulator not in the ‘real world’ over Vodafone and TPG

Lawyers representing Vodafone Australia and TPG have suggested the Australian competition watchdog is not living in reality as it continues quest to force in a fourth MNO.

Last year, Vodafone and TPG announced intentions to merge operations in pursuit of creating a business which can offer comprehensive services in both the mobile and fixed segments. The pair were searching for ‘synergies’, seemingly a play to compete in the world of convergence, but the Australian Competition and Consumer Commission disagreed, blocking the merger four months ago.

The ACCC rationale was relatively simple; if the pair are forced to continue to operate independently, they could potentially fund their own fixed and mobile networks, broadening competition across the country. Vodafone and TPG suggest this is not the case.

“What TPG wants is for this merger to go through but when you step back and look at the options and approach it had before August 2018… it is entirely commercially realistic that TPG will return to rolling out a mobile network,” said Michael Hodge, representing the ACCC in court.

However, the opposition hit back.

“There isn’t a real chance that TPG will pursue the rollout of a mobile network. There is not a real chance that TPG will become Australia’s fourth network,” said Inaki Berroeta, Vodafone Australia CEO.

The dispute here is simple. The ACCC wants four, independent MNOs across the country. TPG made some noise about deploying its own network prior to the merger announcement, though these ambitions were seemingly quashed by the ban on Huawei technology in the country.

“TPG did try to build it, but it was thwarted by community objections, by technical difficulties but ultimately by the federal government’s security guidance,” Ruth Higgins, the legal representative of TPG, said.

Vodafone and TPG do not believe they can compete with Optus and Telstra without a merger, though the ACCC is under the impression a fourth MNO will emerge organically.

TPG did announce in May 2018 it was planning to launch its own mobile network, learning from the success of Reliance Jio in India. The idea to attract subscribers was to offer six months of data and voice services for free, though this idea was killed off due to two developments.

The first development was the merger between Vodafone and TPG. Why would it build its own mobile network when it could dovetail with Vodafone, bringing its own fixed network to the party to complete the convergence dream.

The second development was the banning of Huawei technology in Australia.

“It is extremely disappointing that the clear strategy the company had to become a mobile network operator at the forefront of 5G has been undone by factors outside of TPG’s control,” TPG Executive Chairman David Teoh said at the time.

Following the decision, TPG decided against building its own mobile network as Huawei was the main supplier to the firm. This is an instance which backs up the Huawei claims it will improve competition in the 5G vendor ecosystem, bringing down the price of equipment investment and speed of deployment.

The decision to end TPG investment in a mobile network might have been enough to convince the ACCC the merger could be approved, but it seems the competition watchdog is clinging onto the hope it would do so on its own. TPG statements should be taken with a pinch of salt, it wouldn’t be the first-time executives changed their minds, but it does run the risk of negatively impacting competition.

One thing which is not healthy for any market is a tiered ranking system. If Vodafone cannot compete with Optus and Telstra without the converged business model the TPG assets offer, it might well fall further behind. If it dwindles to the point of irrelevance, the Australian telco market will be in a worse position than it is today, or with the combined Vodafone/TPG company offering increased competition. The risk the ACCC runs is effectively creating a duopoly.

Realistically, there is no right or wrong answer here. We do not have a crystal ball, and we cannot read the minds of TPG executives. It might well pursue the deployment of a mobile network if the prospect of a merger is killed off all together, but then again, it might just double-down on fixed line investments. It does currently have an MVNO, but that is a poor substitution for a fourth MNO to increase competition.

O2 starts making progress in the enterprise services world

O2 might be an ‘also ran’ in the enterprise services world to date, but in being named a supplier on the Crown Commercial Service’s (CCS) new Network Services 2 framework, it is taking a step in the right direction.

As the Government agency tasked with improving government commercial and procurement activity, gaining recognition from the CCS is a notable win for O2. The Network Services 2 framework is effectively the list of suppliers public sector bodies and organizations can work with for telco services such as networks, voice and data provision, internet access and wifi.

“We know that making services easy to procure is a major priority for our public sector customers – so the news that we have been named as a supplier on the new Network Services 2 framework is a huge milestone for all of us at O2,” said Matthew Spencer, Head of Public Sector Sales at O2. “It means we can offer our entire product range of ICT services to public sector and non-profit organisations.

“Today’s announcement opens the door to all sorts of new projects and better integration for customers. As technology evolves, there is enormous potential for improved connectivity, productivity and savings across the public sector – and O2 is here to work with organisations as a digital partner, helping them reach their connectivity goals, faster.”

Originally formed in 1991 under a different name, the CCS is part of the Cabinet Office and negotiates preferred supplier lists for Government departments, agencies and non-profits. It you aren’t on the list, you will find it almost impossible to do business in the public sector.

The ‘Frameworks’ are effectively pre-negotiated template contracts for public sector organizations to use when engaging with potential suppliers for a variety of different services. In this case its telecommunications, but it could be anything from office supplies to payroll management software.

Within each of the frameworks, there are designated ‘Lots’. O2 has been named as a supplier for Lots 1-4 and 6-8, allowing it to offer services such as data access; local connectivity, traditional telephony, inbound telephony, mobile voice and data, paging and alerting and video conferencing. The suppliers for Lots 5, 10 and 13 will be decided in the near future, though we were not able to figure out what these Lots cover.

The supplier lists for Lots 9, 11 and 12 have also been drawn up, though O2 does not feature on these. Services covered here are audio conferencing, radio and surveillance.

At O2, this is a big step forward. The CCS has effectively given the telco its seal of approval, allowing the team to expand in the enterprise services arena.

To date, the enterprise market has been largely dominated by Vodafone and EE. O2 has been operating in the private space for some time, though it has been regularly highlighted by the management team as a significant growth area moving forward. This ambition seems to have been compounded with the looming introduction of 5G.

5G offers the telcos new avenues to work with enterprise customers above and beyond the traditional means of connectivity. With digital transformation a buzzword of yesteryear, enterprise organizations and public sector agencies are increasingly looking to technology to enhance operations. There is an opportunity for the telcos to secure a more valued position in the digital ecosystem, as well as the increased profits, if the proposition is right.

Over the last 12-18 months, O2 has been working alongside a number of the FTSE100 firms to trial usecases ahead of the 5G boom. Although details of the activities are relatively thin, the management team has boasted of its success to date.

Entry onto the preferred suppliers list might seem like little more than a box ticking exercise for some, this is a very important step forward from O2. The inclusion in the framework adds validity and credibility to the O2 enterprise services case, offering a much greater opportunity for the team to carve out market share in a, potentially, very profitable segment of the telco industry.

Elliott’s vultures are circling AT&T

Activist investor Elliott Management has set its eyes on AT&T, suggesting the firm is bloated and undervalued, with ambitions to cut staff, clear out the leadership team and sell-off non-core assets.

In a letter sent to AT&T investors, Partner Jesse Cohn and Associate Portfolio Manager Marc Steinberg have attacked the firm and suggested a drastic turnaround strategy which includes divestments, retail location closures, job cuts and a change in mentality. It does appear shareholders are intrigued by the idea, with share price increasing 6% in pre-market trading.

“The purpose of today’s letter is to share our thoughts on how AT&T can improve its business and realize a historic increase in value for its shareholders,” the letter states.

“Elliott believes that through readily achievable initiatives – increased strategic focus, improved operational efficiency, a formal capital allocation framework, and enhanced leadership and oversight – AT&T can achieve $60+ per share of value by the end of 2021. This represents 65%+ upside to today’s share price – a rare opportunity for any company, let alone one of the world’s largest.”

For those who aren’t familiar with Elliott Management, this is not necessarily a move which is out of character.

Known as a ‘vulture fund’, the team search for businesses which it deems are undervalued and effectively enter to cause chaos. More often than not, the team suggests a complete overhaul of senior managers and a new strategy. This strategy often involves job cuts and asset stripping. Shareholders are brought on board with the promise of increased dividends and a boost in share price.

There are numerous examples where the team has attempted to muscle in on operations, with Telecom Italia (TIM) being the most relevant in recent history. At TIM, Elliott Management has been battling with Vivendi for control and a new strategy, and it does appear to be winning.

In the case of AT&T, Elliott Management is promising a 65% increase in share price by the end of 2021. This is an attractive promise as share price has barely moved over the last five years, from $34.50 on September 12, 2014 to $36.25 at the close of the markets on Friday (September 6, 2019). During this period, a high of $43.28 was experienced on August 12, 2016, and a low of $28.31 on December 21, 2018.

But how do these numbers compare to the share price of AT&T’s rivals over the last five years?

Telco Today 12 Sept, 2014 High Low
AT&T $36.25 $34.50 $43.28 $28.31
Verizon $59.06 $48.40 $60.30 $42.84
T-Mobile US $79.15 $30.83 $84.25 $25.31
Sprint $6.82 $7.00 $9.30 $2.66

Although AT&T is a dominant force in the US telco industry, it has seemingly not capitalised on the 4G revolution in the same way some of its rivals have, most notably T-Mobile US. To rub salt into the wounds, AT&T failed to acquire T-Mobile US in 2011, had to pay the largest break-up fee to date (at the time), and then provided the firm with a seven-year roaming deal and spectrum. This could perhaps be viewed as the turning point for the struggling T-Mobile US.

Another interesting assertion from the Elliott Management team is inability of the AT&T business to act in a timely fashion. This is another point CEO Randall Stephenson should be worried about, as Elliott Management claims AT&T did not deploy 4G aggressively enough and lost out to Verizon in the battle for first place. With 5G on the horizon, investors might well be worried about a repeat.

Ultimately, the biggest criticism is one of poor performance. Despite some very attractive numbers in the 90s and 00s, AT&T hasn’t really pushed on to capitalise on this momentum. In fairness, every telco around the world has suffered over the course of the last decade thanks to the growing influence of the OTTs, but this point has been conveniently ignored in the Cohn and Steinberg letter.

However, it is the acquisition strategy is one of the biggest points made.

“In recent periods, however, AT&T has embarked upon a very different sort of M&A strategy,” the letter states. “Over a series of deals totalling nearly $200 billion, AT&T built a diversified conglomerate by pushing into multiple new markets.

“In each case, the push was as significant as possible. Beginning the decade as a pure-play telecom company with leading wireless and wireline franchises, AT&T has transformed itself into a sprawling collection of businesses battling well-funded competitors, in new markets, with different regulations, and saddled with the financial repercussions of its choices.”

The telco industry has changed in the last decade, and Elliott Management clearly doesn’t agree it is for the better. In the 90s and 00s, acquisitions were connectivity orientated, while recent years have seen an aggressive push into the world of digital services, diversifying products which can be offered to the consumer.

This is one of the critical points the Elliott Management team is levying towards AT&T; its acquisition strategy has not been effective. The failure to merge with T-Mobile US is a critical point, but since that point the team has spend more than $200 billion to create a beast of a business. Some have suggested this was necessary to diversify the business in preparation for the digital economy, however this is not the opinion of Elliott Management.

We do not agree with Elliott Management here. Convergence is a sound business model which moves the telco into the value-add column. A more stringent focus on connectivity will walk the telco down the road of utilitisation, opening the industry up to more aggressive regulations and price controls. This is not the direction many telcos want to head, but Elliott Management does seem to like the profits driven out of a business which focuses on operational efficiencies and little else.

Let’s not forget the Elliott Management business model after all. Identify underperforming shares, disrupt the business model for short-term share price rises and then sell the stock, while collecting meaty dividends along the way. If Elliott Management gets it way, AT&T will be a utilitised business, with fewer assets. It might not be a competitive force in a decade, when other telcos are reaping the benefits of diversification. However, Elliott Management will not care by that point.

Perhaps the three most important points of the plan set forward by Elliott Management are:

  1. A change in strategic direction from acquisition to executive
  2. Clearing out the current management team
  3. Divestment in non-core assets

There are other points made, such as closing redundant retail locations, negotiating more authorised third-party retailers, cutting back on the over-bureaucracy, simplifying the management structure and redundancies. However, we feel the three mentioned above are perhaps the most important for investors.

By shifting from an acquisition mind-set to an execution one, and making the suggestion of divestments, it would appear the AT&T business is one which will be focused more acutely on traditional telecommunications services. The tone of the letter does not suggest Elliott Management believe the content world is one which can bring fortunes, and the way in which the team discuss the success of T-Mobile US also alludes to this new, narrowed focus.

What does this mean for the very expensive content acquisitions? Perhaps nothing, or perhaps everything. We suspect the idea from Elliott Management would be to silo each of the business units, allowing a more lasered focus on core revenues in the siloes. There might well be cross-selling opportunities, but the language used by Cohn and Steinberg suggests digital services and ambitious convergence is not on the agenda.

The proposed strategy to realise the 65% increase in share price is one of simplicity, enhancing what is currently in the armoury and taking a more traditional approach to the business of connectivity.

And while there might be thousands of nervous employees throughout the organization worried of the prospect of job cuts, the senior management team should be much more concerned. After interviewing various former-executives, Elliott Management has come to conclusion that the executive management team does not have the right skillset to tackle the challenges which AT&T is facing today.

Should Elliott Management get its way, heads could roll, and the leadership team could look remarkably different. Elliott Management is also seeking greater influence for the Board of Directors, another common play from the team. The activist investor often looks to secure positions to friendlies at the companies it has in its crosshairs, and it will certainly want to exert more control on the strategy moving forward.

If Elliott Management gains control and influence at AT&T, it could look like a very different business. The investor believes it has identified $10 billion in cost-efficiencies would can be realised through spending $5 billion. This does not account for any divestments which would be made though. AT&T might well have fewer retail locations, a smaller headcount, a new management team, a lessened focus on content and digital services and a more utilised business model in the near future.

This is only the beginning of this saga, Elliott Management will certainly have a wrestle on its hands to gain control, but it does have good form when it comes to forcing through disruption.

Telenor and Axiata pull the plug on mega-merger

Operator groups Telenor and Axiata had intended to merge their Asian operations but have now decided it’s just too much hassle.

The proposed merger was announced back in May. “We are on the verge of making a new history,” said Axiata Group CEO Tan Sri Jamaludin Ibrahim, at the time. “This proposed mega merger of equals would create a Global Champion, headquartered right here in Malaysia.”

But by the time we got to Axiata’s quarterlies last week, there was talk that the move was set to fall through. Ibrahim wasted little time in scotching those rumours, insisting that the talks were still on track, but that they were always bound to take a while due to the complexity of the deal.

Well now it looks like that priced-in complexity is the reason for the whole deal collapsing, respite recent reassurances to the contrary. “Over the last four months, both parties have been working on due diligence and finalising transaction agreements to be completed within the third quarter of 2019,” said the short announcement. “Due to some complexities involved in the Proposed Transaction, the parties have mutually agreed to end the discussions.”

This is pretty embarrassing for both companies. Of course due diligence needs to be followed but what could have taken them four months to uncover? No more details have been revealed but you have to assume that either some corporate skeletons in the closet were uncovered or one of the parties involved has gone off the whole idea for some reason.

T-Mobile staff start getting twitchy over Sprint merger

A letter has emerged from T-Mobile Workers United, with the union asking Deutsche Telekom executives to confirm jobs will be safe following the merger between T-Mobile US and Sprint.

According to Reuters, the union, representing around 500 employees from the telco, have seemingly decided to skip out T-Mobile US CEO John Legere and gone straight to group boss Tim Hoettges. The union is seeking assurances jobs will be safe should the merger between the two telcos survive legal challenges which are emerging.

Although there have been several assurances from Legere the merger will be a net creator of jobs, this is under the assumption growth can be achieved through the union. It might sound like a good headline, but reading into the statements, Legere is suggesting job creation will be down to synergies between the firms and a more assertive challenge to AT&T and Verizon.

However, the issue of business rationalisation has not been addressed head on. Whenever two large businesses are brought together through a merger, redundancies are unavoidable. This is a point which has not been addressed by the management teams, with senior managers simply pointing to the potential for growth.

Irrelevant as to whether there will be job creation through an aggressive network rollout or a taking the combined business into new, regional markets, there will be overlap between the two businesses. Not every lawyer, accountant or HR employee will need to be retained as the team will seek cost efficiencies during the integration process. The other thing you have to think about is the retail presence.

It won’t be in every location, but there will of course be hundreds of jobs at risk as the merged business seeks to rationalise its presence on the high street. There are going to be numerous locations where both Sprint and T-Mobile US have a physical store within minutes of each other; a choice will have to be made and job cuts will be evident. Being a net creator of jobs does not mean there will be no redundancies.

These staff are perfectly entitled to feel nervous, as the issue has not been directly addressed and any logical person would say there will be redundancies.

Huawei hits back, claiming US is threatening its employees

Perhaps this is the first hint of a new media strategy from the under-fire vendor as Huawei suggests the US Government is encouraging threats and menace to turns its employees against it.

Although this is only a single act, it is a very different approach to how Huawei has been managing the drama through the last 12 months. This is maybe the position it has been forced into by White House aggression; it might have to start fighting fire with fire.

In a statement, Huawei has suggested the US Government has been “instructing law enforcement to threaten, menace, coerce, entice, and incite both current and former Huawei employees to turn against the company and work for them.”

In shining a light on the bullying tactics of the US Government, perhaps the executive team is looking for sympathy from friendlier nations or for someone to step-in and suggest the actions are not proper. The US Government certainly won’t be shifted from its current course through social embarrassment but calling attention to the strategy it might sour the relationship between the US and other nations around the world.

Aside from encouraging government agencies to act through ‘unscrupulous means’, Huawei is also suggesting the US is:

  • Unlawfully searching, detaining, and even arresting Huawei employees
  • Launching cyber-attacks against the firm
  • Coercing other companies to bring unsubstantiated accusations against the company
  • Attempting entrapment
  • Obstructing normal business activities and technical communications through intimidation, denying visas and detaining shipment

Although it isn’t entirely clear what the desired outcome of this statement actually is, it is a new approach. To date, Huawei has sat back and absorbed the abuse. Its messages have focused on proving its own innocence, as opposed to tackling its opponent. Perhaps this is about to change.

With this statement, Huawei is calling attention to the less attractive traits of the US. It might consider itself as the front-line of defence, the world police in some people’s eyes, however it can also be viewed as a bully. Not only would many deem this inappropriate, if some of the claims above prove to be true, the White House might well be acting illegally.

President Trump’s administration certainly does things differently from those who have previously inhabited the White House, though the jury is still out on what this actually means. Some like the fact Trump is shaking up politics, some suggest he is an embarrassment to a privileged position of responsibility, a shambolic disaster who stumbles from one inappropriate statement to the next calamitous action.

It does seem there is an element of the ‘straw which broke the camel’s back’ here.

This chapter of the on-going saga is focused on a patent dispute with Rui Pedro Oliveira which has now being going on for two years. Circling around the development of a camera design included in Huawei smartphones, the Department of Justice has launched an investigation as a result. Huawei believes Oliveira is taking advantage of the geopolitical climate and the US Government is jumping on another opportunity to swing the stick at the firm.

Perhaps this will be the beginning of a new media strategy, drawing the attention to the US’ ugly traits. This Presidential administration has certainly taken a more combative, bullying approach to international relations, though we suspect it will not be too bothered by the Huawei statements. That said, other governments might take notice and start getting irked by the continued campaign of hate and ‘unpresidential’ actions.